Blue-state lawmakers launch effort to repeal SALT cap

Blue-state lawmakers launch effort to repeal SALT cap

SADDLE BROOK, N.J. — New Jersey Sen. Bob Menendez and other members of the state’s congressional delegation announced legislation Monday that would repeal the cap on state and local income tax deductions enacted as part of the Tax Cuts and Jobs Act, H.R. 1 (115).

Menendez (D-N.J.) and Rep. Bill Pascrell (D-N.J.), the primary sponsors, say their bill would pay for the cost of removing the $10,000 cap by restoring the top income tax bracket to 39.6 percent. While that’s likely a nonstarter with many in the GOP, Rep. Chris Smith (R-N.J.) — New Jersey’s only Republican congressman — is also sponsoring the legislation.

The lawmakers said Monday there was anecdotal evidence middle-class Americans in high-tax states were seeing their federal tax bills increase as a result of the limit on such deductions, known as SALT. The legislation enacted last year by President Donald Trump is hurting, not helping, many taxpayers, they said.

“President Trump and his Republican allies in Congress promised middle class families thousands of dollars in tax relief and a $4,000 raise in their salaries,” Menendez said at a press conference at an accounting firm in northern New Jersey. “But all they got was $1.5 trillion more in debt and an economy that is even more rigged for big corporations and big CEOs.”

The legislation — which the lawmaker have dubbed the “Stop the Attack on Local Taxpayers Act,” or SALT — comes after Trump told local reporters last week he would be open to revisiting the $10,000 cap, saying he had heard the new policy had been "severe" on some taxpayers.

A spokesperson for Sen. Chuck Grassley (R-Iowa), chairman of the Senate Finance Committee, said Thursday his committee had no plans to reexamine the SALT cap and accused Democrats of caring more about the wealthy, who could see some of the biggest benefit from a repeal.

Indeed, the Urban-Brookings Tax Policy Center has estimated that the top 1 percent of taxpayers would get some 56 percent of the benefits if the SALT cap is repealed.

Pascrell said he and his colleagues had considered including an income limit in their legislation, ensuring the wealthiest people would still be subject to a cap. However, he said, they decided instead to propose restoring the top tax bracket. The GOP-backed tax overhaul reduced the top rate to 37 percent, while also raising the income threshold to $500,000 for singles and $600,000 for married couples.

“I think the better approach now is to make sure we don’t prejudice any particular group and that we move toward getting rid of the ability to stop this deduction. And that’s the main purpose that we have,” he said. “What the bill finally winds up with, like every other bill, who knows? But that will probably be one of the things that is discussed.”

With Democrats in control of the House, Menendez, Pascrell and several other congressmen who attended the press conference said they believed the SALT cap could become an issue the GOP-led Senate would have to take seriously. Menendez also said Democrats in the Senate could put pressure on leadership by blocking any bills that aim to correct writing errors in the tax law.

The SALT cap became a campaign trail issue last year in a number of congressional districts that ended up flipping from red to blue. The pain from the deduction is mostly being felt in places like New Jersey, New York, Connecticut and California — all states led by Democrats.

New York Gov. Andrew Cuomo said Monday he plans to discuss the issue with the president on Tuesday. Cuomo has blamed the tax law for a $2.3 billion state revenue shortfall he’s facing in Albany.

“You have a structural liability now, as a state, that you simply cannot overcome,” Cuomo told reporters Monday in the state Capitol’s Red Room. “I think this is a vital issue, not just for our state.”

About a million New Yorkers are affected financially by the $10,000 limit, accounting for other parts of the tax law that benefit them, New York Budget Director Robert Mujica said.

In New Jersey, about 40 percent of residents who filed 2016 tax returns used the SALT deduction to reduce their total tax bill, averaging $18,000 per deduction.

A number of clients of RotenbergMeril, the New Jersey accounting firm where the lawmakers held their Monday press conference, have seen their total federal tax bills increase as a result of the cap, said Ann Callari, a tax partner at the firm.

“With the SALT change, many of our clients are considering moving out of the state,” Callari said. “The SALT limitation affects the middle class, as well as wealthier taxpayers. It’s unfair to New Jerseyans to bear a larger tax burden than most — and that’s exactly the effect of the cap.”